Chapter 12 - Depository Institutions: Banks and Bank Management

Depository Institutions

the financial institutions that accept deposits from savers and make loans to borrowers

Nondepository Institutions

no liability side of balance sheet

Commercial Banks

established to provide banking services to businesses, allowing them to deposit funds safely and borrow them when necessary

Bank Assets

bank liabilities + bank capital

Asset Categories

cash, securities, loans, all other assets

3 types of cash assets

reserves

cash items in process of collection

balances of the accounts that banks hold at other banks

Checkable Deposits

demand deposits which allow a customer to withdraw funds without notice on a first come, first served basis, make up the largest component

federal funds market

banks with excess reserves will lend their surplus funds to banks that need them through this interbank market

Repurchase Agreement

a short-term collateralized loan in which a security is exchanged for cash, with the agreement that the parties will reverse the transaction on a specific future date, typically the next day

Bank Net Worth

bank capital or equity capital

loan loss reserves

an amount the bank sets aside to cover potential losses from defaulted loans

ROA

net profit after taxes/total bank assets

interest rate spread

the weighted average difference between the interest rate received on assets and the interest rate paid on liabilities